In Germany, there are usually 5 different transaction costs that are incurred in addition to the purchase price of the property. These are:

• Notary fees – In order to make the purchase of real estate in Germany legally secure, the purchase is notarised by a notary. The notary fees amount to approx. 1.5% of the purchase price. Notary fees are regulated by law.
• Land register entry – In order for you as the buyer to have the legal certainty that you are also the owner of the purchased property, an entry is made in the land register. The costs for the land register entry amount to approx. 0.5% of the purchase price.
• Brokerage fees – As you are usually buying the property from a local estate agent, you can expect to pay approximately 3.57% brokerage. However, these can also be higher or lower.
• Real estate transfer tax -The individual federal states in Germany levy different real estate transfer taxes. These amount to between 3.5% and 6.5% of the purchase price, depending where you buy real estate in Germany.

Calculation example:

You would like to purchase a property for investment in Düsseldorf at a purchase price of 1.000.000 euros.

The service charges are approx:

• Notary fees (1.5%): 15,000 euros
• Land register entry (0.5%): 5,000 euros
• Brokerage fees (3.57%): 35,700 euros
• Land transfer tax (6.5%): 65,000 euros

Total service charges (12.07%): 120,700 euros

Purchase price of the property incl. of all service charges: 1,120,700 euros

Yes, you can acquire real estate in Germany both as a natural person and as a company (both domestic and foreign). This is the case in many other European countries, e.g. in the Netherlands. Sweden or Switzerland are not so easily possible. In many Asian countries, too, you as a foreigner cannot invest in real estate, or only with great difficulty (e.g. through company constructions with locals).

Another advantage is that when you buy a property in Germany, you are registered as the owner in the land register. In many Asian countries, such as China. Singapore or Vietnam, you can only buy property with a 99-year lease.

German property law is also very pronounced, so that expropriation by individual citizens or the state is almost impossible.

Yes, as a foreigner who is not resident in Germany, you have the option of opening a German bank account. However, you are limited in your choice of bank account. Classic branch beacons usually refuse to open an account. Direct banks are more liberal here and sometimes allow you to open an account within one week.

Under income tax law, a distinction must be made as to whether the property is acquired as a private individual or as a company.

1. Income tax as a private individual:
   Natural persons who are resident or domiciled in Germany are subject to German income tax. This also includes the taxation of rental income. Most double taxation agreements concluded with Germany provide for taxation of real estate income in the country where the real estate is located. Therefore, individuals who are neither resident nor domiciled in Germany are subject to German income tax on income from real estate located in Germany. Income tax rates range from 14% to 42%. Income that reaches or exceeds EUR 57,919.00 is taxed at a rate of 42%. Income exceeding EUR 250,731.00 is subject to a tax rate of 45%. In addition, a solidarity surcharge of 5.5% of the respective income tax liability is levied.
2. Income tax as a company – If you buy real estate with a German GmbH, you must first pay corporate income tax at 15%. In addition, there is the solidarity surcharge of 5.5% on the corporate income tax liability. Overall, the rental income is therefore taxable at 15.825%. This also applies to companies that have their management but not their registered office in Germany as well as companies that do not have their registered office or management in Germany.
   Taxation takes place irrespective of whether profits are distributed or not. Dividends from a German company or a foreign corporation with its registered office in Germany are subject to a withholding tax of 25%. The tax burden is so low because the legislator rewards you if you hold the properties for the long term with an asset-managing intention and therefore no real estate transfer tax of approx. 15%, as is the case with operating companies, is due.

   Supplement: In the case of a corresponding double taxation agreement (DTA), the tax burden may change once again.

   Together with our renowned tax advisors and lawyers, we set up the optimal tax and legal structure for you.

In Germany, there are various instruments that can significantly reduce your income tax burden on rental income:

• Depreciation – If a property was built after 1925, you can depreciate 2% of the building value of the property each year for 50 years and set it against your rental income. For properties built before 1925, it is even 2.5% over 40 years.
• Interest – You can also offset the financing interest against your rental income
• Income-related expenses – If you invest no more than 15% of the value of the building in renovation work in the first 3 years after purchase, you can also immediately claim these costs against tax.

As with income tax, a distinction must be made when selling real estate as to whether you are selling the property as an individual or as a company.
[Die Angaben beziehen sich ausschließlich auf Buy & Hold Investoren]

1. Sale as a private individual – If you acquire the property as a private individual and hold it in your private assets for more than 10 years, then you can sell the property tax-free. This means you do not have to pay tax on the capital gain. However, you should not sell more than 3 properties within 5 years. Then the tax office can assume that you are a commercially oriented investor. As a result, you will have to pay tax not only on the fourth sale, but also on the 3 previous sales.

   If you sell the property within 10 years, you have to pay tax on the gain at your personal income tax rate.

2. Sale as a company – If you sell the property as a company, the full amount of corporation tax of 15% of the capital gain will be due. The privilege of tax-free sale after the 10-year speculation period in the private sector is unfortunately excluded.

As a foreign investor who is not resident in Germany, you are subject to stricter conditions with regard to financing. This means that you can usually only get a maximum of 60% of a property financed by a domestic bank.

Therefore, it is important that you involve local banks in your investment project in advance and thus ensure that financing can be presented.

As a transaction advisor, we take over the presentation of the financing as well as the communication with local banks for you.

The land charge can be described as collateral for real estate financing. The land charge deed must be certified by a notary and later entered in the land register.

With the land charge, the owner undertakes to pay a certain amount of money from the property to the lender (usually the financing bank). As a rule, it is agreed that the land charge is enforceable in the event of default under the loan agreement. A land charge is enforced by the sale of the property at public auction or by forced administration of the property.

• Exposé of the broker
• Land register extract
• Building plans and floor plans of the flats
• Business plan
• Site plan
• Declaration of division
• Rental agreements
• Minutes of an owners’ meeting
• Evidence of renovations or refurbishments
• notarial purchase agreement

Die Prüfung aller rechtlichen und baulichen Unterlagen zu einer Immobilie übernehmen wir für Sie.

Once you have reached an agreement with the estate agent or seller to buy the property, the following steps are usually set in motion:

1. You inform the local bank that is to finance the property purchase and send it all the necessary documents.

2. You as the buyer or the seller/broker commission a notary to draw up the notarial purchase contract. Property purchase agreements must always be concluded before a notary.

[Supplement: Buyer and seller do not necessarily have to appear in person, but may authorise a representative by means of a written power of attorney. The power of attorney must be certified either by a German notary, a German consular officer or a foreign notary. In the latter case, the power of attorney must be provided with an apostille].

3. As a rule, you will receive the draft purchase contract 2 weeks before the notary appointment, which you can still edit with your additions.

4. Signature of the notarial purchase contract at the notary between seller and buyer.

5. In order for you as the buyer to have maximum legal certainty, the notary will now initiate all steps that are a prerequisite for the payment of the purchase price.

These are:

• Pre-registration at the land registry that you will soon become the owner
• Obtaining the clearance certificate from the tax office
• Waiver of the right of first refusal on the part of the city
• cancellation of old land charges and property encumbrances

6. Once all the conditions for payment have been met, you will receive a request from the notary to pay the purchase price.

The notary acts as an independent authority throughout the purchase process and liaises with the authorities involved. A notary escrow account can also be used to balance the respective risks of the parties.

As an independent, third party acting in your best interest, we check all details of the notarial purchase contract.

These may include, but are not limited to:

• The obligation to sell and purchase of both parties.
• The exact description of the property
• The requirements for the maturity of the purchase price
• The terms of payment
• The transfer of benefits and burdens (also economic transfer)
• Real estate lien
• Liability for defects of quality and title
• Power of attorney for the buyer to register a priority notice

In operational management, a distinction must be made in Germany between 2 types of costs:

1. The costs that can be passed on to the tenant:

• Property tax – The annual property tax is paid on 01 January of a year and is calculated according to the following formula: Unit value x property tax rate (varies from municipality to municipality) x assessment rate = annual property tax.
• Insurance costs
• Waste collection
• Maintenance costs
• Power
• Gas
• Work around the house (garden maintenance, caretaker service, etc.)

2. The costs that can NOT be passed on to the tenant:

• Costs for an asset manager or property management
• Account management fees
• Repair costs or refurbishment costs
• Costs for a tax advisor who carries out the annual tax return for you